Obama administration starting bank stress tests this week...

[dkf]

Bank regulators this week will start performing their battery of stress tests at the nation's largest banks as part of the Obama administration's industry-bailout plan. As part of those tests, the Fed is expected to dwell on the TCE measurement as a gauge of bank health, according to people familiar with the matter.

The crisis is triggering a deep re-examination of the way bank health is measured in the U.S. financial system. This complex exercise boils down to calculating various ratios of capital to a bank's total assets.

Until recently, TCE -- essentially a gauge of what common shareholders would get if an institution were dissolved -- has been one of the less prominent ways to measure a bank's vigor. TCE is also among the most conservative measures of financial health.

Bankers and regulators generally prefer to use what is known as "Tier 1" ratio of a bank's capital adequacy. It takes into account equity other than common stock.

By Tier 1 measurements, most big banks, including Citigroup, appear healthy. Citigroup's Tier 1 ratios 11.8%, well above the level needed to be classified as well-capitalized.

By contrast, most banks' TCE ratios indicate severe weakness. Citigroup's TCE ratio stood at about 1.5% of assets at Dec. 31, well below the 3% level that investors regard as safe.

The regulators' new focus on TCE represents an important shift. The government's recent injections into hundreds of institutions were predicated on the idea that Tier 1 was key. Because the investments weren't in the form of common stock, they didn't affect the companies' TCE ratios.

http://online.wsj.com/article/SB123535148618845005.html

[ayeshahaqqiqa]

1. In this case, I'm all for Obama taking the conservative route

TCE at 3% is showing protection for the shareholders, and therefore all who invest in or use the bank.

[dkf]

2. The irony is that it is the idea of nationalization which is driving down

the stock price, making the TCE even weaker.

Nationalization might be a self fulfilling prophecy.

[Marsala]

6. Which is why the administration doesn't even want to talk about it

Merely talking about nationalization makes it more likely. Even now it's probably too late for Citigroup and Bank of America.

[kentuck]

3. I'll bet the lobbyists are handing out some big bucks for the banks...

this week??

[MannyGoldstein]

4. Uh... Reality Check Time

"By Tier 1 measurements, most big banks, including Citigroup, appear healthy. Citigroup's Tier 1 ratios 11.8%, well above the level needed to be classified as well-capitalized."

OK, then why is Citi desperately trying to sell 40% of themselves to us this evening? They want us to cash in on a good deal?

[dkf]

5. Because they are focusing on another ratio, TCE which is based on common stock.

That is why I clipped this part of the article. I had heard of Tier 1 ratios, but not TCE.

[MannyGoldstein]

7. Ooops, My Bad

Reading impairment brought on by Sierra Nevada Pale Ale.

[dkf]

8. I'm used to them talking Tier 1 ratios too.

Here's something else I found. Its making me very nervous.

Which Banks Might Fail the Stress Test?

By Morgan Housel
February 12, 2009 | Comments (6)

One part of Treasury Secretary Geithner's plan to prop up the failing bank sector is a forward-looking "stress test" imposed on every bank with over $100 billion in assets. Those failing the test would have access to contingent capital that could, thought goes, keep them alive -- or zombified, depending how you look at.

http://www.fool.com/investing/dividends-income/2009/02/12/which-banks-might-fail-the-stress-test.aspx

Read the whole thing. It lists the big banks and where they all stand, redefining for me the list of "healthy" banks.

[MannyGoldstein]

9. This Is One Nuclear-Fueled Clusterf&%k

Only thing left to do is to claw back the 28 years of ill-gotten gains by The Rich by taxing the crap out of them, and using the money to fund the re-establishment of a Middle Class.

[dkf]

10. Yeah but you can't claw back for money made yesterday,

only money being made going forward at least not through income taxes.

I guess what you are proposing is to increase estate taxes which is the only way you can get to assets that were earned a long time ago.

[MannyGoldstein]

11. 75% Tax On Capital Gains

And 91% on earned income (as Eisenhower put in place).

That will be a start.

[dkf]

12. There are no capital gains. People have enough capital losses

to last for eons.

Like I said, earned income won't get to people who already made all the money, i.e. the ones everyone is mad at.

I guess my point is you can do all those things, but you can't redo what was done in the past.

It was always about generational theft, basically making the next generation pay for the excesses of the day.

[MannyGoldstein]

13. You Can't Redo The Past, But...

You can do things that, in a statistical sense, have the same effect moving forward. Today's rich are likely tomorrow's capital gainers. Not perfect correlation, but probably not too bad.

But your points are good.